Credit Scoring and Retail Credit Risk Management (FRM Part 2 2023 – Book 2 – Chapter 15)

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After completing this reading you should be able to:
- Analyze the credit risks and other risks generated by retail banking.
- Explain the differences between retail credit risk and corporate credit risk.
- Discuss the “dark side” of retail credit risk and the measures that attempt to address the problem.
- Define and describe credit risk scoring model types, key variables and applications.
- Discuss the key variables in a mortgage credit assessment and describe the use of cutoff scores, default rates and loss rates in a credit scoring model.
- Discuss the measurement and monitoring of a scorecard performance including the use of cumulative accuracy profile (CAP) and the accuracy ratio (AR) techniques.
- Describe the customer relationship cycle and discuss the trade-off between creditworthiness and profitability.
- Discuss the benefits of risk-based pricing of financial services.